Millions will get big tax rebates

UP to 3.5 million people are in line for generous rebates after another blunder by the taxman.

On average, repayments will amount to £340 but some ­taxpayers could pocket thousands of pounds.

Letters from HM Revenue and Customs are expected to start going out in a fortnight, followed two weeks later by cheques. An audit found that as much as £1.2billion was wrongly taken out of wage packets in the 2010-11 tax year.

However, a further 1.2 million people will get the grim news they paid too little tax and will have to pay it back in instalments. The errors relate to the Pay As You Earn (PAYE) system. Mistakes by HMRC as well as employers’ ­failure to inform the taxman of changes in workers’ hours and perks are being blamed.

HMRC has a history of blunders, although last night a spokesman insisted that its record is improving as computer systems increase accuracy. However, critics are far from satisfied. They point out that any rebate is money that was wrongly kept out of an individual’s pocket last year.

HMRC spokesman

The reconciliation process is an integral part of any deduction-at-source ­system

Also, putting right tax errors has a huge cost to the public purse.

Senior Conservative David Ruffley, of the Commons
Treasury Select Committee, said: “The private sector has a culture of
‘right first time’. That ethos needs to be injected into HMRC.

“While
the refunds may be good news for those people who find they had paid
too much, the process of ­handling them isn’t free. It costs time and
money to rectify mistakes, which could have been spent on something more
productive.’’

The errors were uncovered in what HMRC calls its annual “reconciliation’’ process to check if people have paid the right tax.

It
estimates that between 1.7 million and 3.5 million people paid an
average of up to £340 too much in the tax year ended in April. Exact
numbers will not be known until detailed work begins.

However,
a spokesman stressed: “People don’t have to do anything. Letters will
just arrive.” These can be expected relatively soon.

The
1.2 million “losers” in the audit are thought to have paid on average
of between £500 to £600 too little tax last year – up to £720million in
total. They can expect to get the bad news in letters in the autumn.

HMRC
plans to collect most of the money owed through extra pay packet
deductions – typically £50 a month – from next April. Other arrangements
will be made for underpayments of over £3,000. Mike Warburton, of
accountants Grant ­Thornton, warned that as many as 160,000 pensioners
could be among those hit.

This is because of
mistakes in applying tax-free personal allowances to their other sources
of income when they first start drawing the state pension.

“It is quite easy to run up an underpayment of more than £1,000 a year,’’ said Mr Warburton.

The
numbers involved are less than last year’s scandal, when problems with a
new computer system forced HMRC staff to hand-check tax returns. It was
found that nearly six million people had paid wrong amounts, including
underpayments averaging £1,400.

Emma Boon, of
the TaxPayers’ Alliance, said yesterday: “This latest blunder raises
more questions about whether shambolic HMRC is fit for purpose.’’

She
added: “The taxman fines us when we’re late or make a mistake with our
returns, and yet here’s more evidence that HMRC doesn’t have its own
house in order.

“Last year they hid behind the excuse that this was the previous administration’s fault, but that just won’t wash this year.

“It
is unfair if taxpayers are out of pocket due to the taxman’s mistakes
or are being asked to pay back more than they can afford too quickly.’’

HMRC
does not pay or demand interest on over or underpayments. It is also
offering less leniency this year to those who have paid too little.

The previous furore led it to raise its threshold for debt it would pursue to £300.

This time, any unpaid tax of more than £50 will be chased up.

In “hardship” cases people may get 18 months to pay.

An HMRC spokesman said: “The reconciliation process is an integral part of any deduction-at-source ­system.

“Although
80 per cent of all those who are taxed through PAYE pay exactly the
right tax first time, we very much regret that some taxpayers will have
paid less than the law requires.

“Our new
computer system is now working well and the greater accuracy it has
delivered will drive down both over and under- payments in future
years.’’